Your link refers more broadly, "The Ever-Increasing Cost of Propping Up A Fragile And Dysfunctional System." You narrowed it to "financial", which is on topic, but the same applies to other systems, e.g. medical.

America’s period of robust economic growth coincided with FIRE sector profits being between 10 and 20 percent of total profits, and wages in the FIRE sector being below 5 percent of total wages.

The government can and should play a sincere role in ensuring no single sector becomes a parasite that wrecks the rest of the economy. However what we have today is that the government is colluding with the parasitic private sector and making the situation even worse.

My point was that there are a whole bunch of people saying that because what is happening is bad for society, it has to change. That's not the case, and your financial planning should take that into account.

There are a number of different channels -- mortgage rates, I mentioned other interest rates, corporate bond rates, but also the prices of various assets, like, for example, the prices of homes. To the extent that home prices begin to rise, consumers will feel wealthier, they'll feel more -- more disposed to spend. If house prices are rising, people may be more willing to buy homes because they think that they'll, you know, make a better return on that purchase. So house prices is one vehicle. - Bernanke, Sept 2012

It is an explicit defense of reflation. So Bernanke wants it and he's getting it. Bernanke's models apparently do not tell him that Ponzi financial policies are unsustainable in the long run. They will blow up.

The Euro will implode first, but it looks like they're going to keep backing it with dollars and bonds for another 7 years as a Euro slow bust is good for the dollar, although if they don't stop marrying each other they could both go bust close to the same time.

everything,

have you seen this chart?

Euro system actually marks their gold reserves to market every quarter. You can see the rebalancing of the central bank balance sheet with gold in live action.

So I don't think the Euro will implode. The Euro was built to resolve the dollar's flaws.

Yes, it gets messy because you have to use smoke and mirrors to keep brutally expensive things expensive.

I don't think that is the causality. The causality is extreme wealth disparity, which will lead to social and civil unrest if nothing is done about it. By keeping it orderly - I meant we resolve this problem of wealth disparity without wrecking the whole economy.

Don't forget who the bad guys are again. They are the banks who create money out of thin air and cry for a government bailout whenever they make bad investments. A global default that kills mega-banks COMBINED WITH DIRECT GOVERNMENT INSURANCE OF DEPOSITS AND LENDING will result in an economic boom EXACTLY like it did in Iceland and EXACTLY like never happened (to their horror) in Ireland.

iwog - I completely agree with you.

I was saying that since politics can be disorderly, defaults tend to be disorderly, which is severely disruptive.

Deleveraging can get very disorderly if not managed properly. The real conflict is between creditors and debtors, and if there is an adult conversation - mutual consensus would be inflation and trying to keep it orderly.

We are currently in a demand side crisis. Giving Americans money will cause increased production which will offset the amount of money created by growing the market. This is how the REAL economy works.

It's the private debt, stupid!

demand is destroyed because of too much debt. not the other way around.

I think you have built a trawman against Krugman and Keynesians in general. This is a common criticism of Keynes, the "robbing the economic seed corn" by a combination of deficit spending and increasing liquidity.

I don't think it is a strawman attack on Keynesians because they DO ignore debt in their models.

In particular, he asserts that putting banks in the story is essential. Now, I’m all for including the banking sector in stories where it’s relevant; but why is it so crucial to a story about debt and leverage? - Krugman on Steve Keen

The reason why the FIRE sector continues to dominate the economy is because rent seeking is rampant and encouraged. Krugman can nail the problem of rent seeking if he chooses to include debt in his models.

Lower rates will allow riskier activity to take place, but it shouldn't cause a misallocation of resources

From the same link that I just posted:

The 'hot money' seeks beta, and that means financial paper, and frauds like collateralized debt obligations, tied to whatever hapless aspect of the real economy that is convenient, such as housing for example.

So yes, you are right. lower interest rates would encourage riskier activity that wouldn't have been taken otherwise. Who knows if this riskier activity is actually productive?

Well, we can figure out if it is likely to be productive or not, by ensuring that the firm which takes on the risk is actually punished for taking such a risk in case the venture fails. What happens in the current economy? Risk is always socialized, Finance is rent seeking through seignorage.

If you borrow a million dollars you owe a million dollars. It makes no difference how low the interest is, you have to pay the money back.

To add on to what swebb says, interest rate is the price of money. If interest rates are artificially low, then some activity can take place (even if it is totally unproductive to the real economy) which would not happen otherwise. So it does cause misallocation of resources.

Interest rate is a very important signal, but what we have today is market manipulation because the Fed is engaging in open-ended QE.

Monetary inflation without reform is the 'solution' that most favors the monied interests and the financial class given the extractive nature of the system as it is.

How long should one wait for things to return to the "old normal"? 3 years? 5 years? 20 years? By that time, I'd be an old man, and my kids would be teenagers by then, nearly ready to leave for college.